Higher rates souring business, consumer sentiment: BoC survey

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Central bank’s quarterly business survey finds companies expect sales to be subdued over the coming year

Canadian businesses and consumers are increasingly feeling the pinch of higher interest rates, however both groups still believe that inflation will remain elevated for an extended period of time, according to a pair of surveys by the Bank of Canada.

This may concern the Bank of Canada as it prepares for its next interest rate decision on Oct. 25. The bank has said it’s watching inflation expectations and price-setting behaviour particularly closely for signs of future price pressures. The bank held its benchmark interest rate steady at 5 per cent last month, but has said it could raise rates again if inflation and other economic indicators aren’t moving in the direction it wants to see.

The business survey was conducted in August and early September. The consumer survey was conducted in August with follow-up interviews in early September. At the same time, companies are growing more optimistic about labour costs as the job market cools. Companies said they are finding it easier to hire the workers they need, and many expect wage growth to slow over the coming year.

This is also reflected in differing views about future inflation. Business expectations for inflation have been falling for the past year-and-a-half, even as they remain elevated. The mean forecast for inflation two-years out is now 3.29 per cent, down from 4.78 per cent in the summer of 2022. The Bank of Canada targets 2-per-cent inflation.

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